In specific circumstances, UK expats who choose to repatriate can take advantage of a provision that allows them to pay tax on a smaller portion of gains and protect their investment profits—time apportionment relief (TAR).
In this guide, we’ll explain what time apportionment relief is, how it’s calculated, and who can benefit from it the most. We’ll also address potential challenges associated with TAR and provide suggestions on how to mitigate them.
What You Will Learn
- What is time apportionment relief?
- How does time apportionment relief work?
- How is time apportionment relief calculated?
- What are the challenges related to time apportionment relief?
What Is Time Apportionment Relief, and How Does It Work?
Time apportionment relief can be applied to a UK chargeable gain (the difference between what you paid for an asset and what you sold it for) to reduce total tax liability.
In the case of a chargeable event gain subject to tax, TAR can reduce the gain based on the number of years you’ve been a non-UK resident during the policy’s term.
Chargeable events may include:
- Surrendering all rights under a contract or policy.
- Transferring the ownership of a life insurance policy or investment bond for money or money’s worth.
- Maturity of a life insurance policy.
- Life insurance policyholder’s death, resulting in benefits being distributed to beneficiaries.
For instance, if you’ve owned an investment bond for 10 years, and out of those 10 years, you were a non-UK resident for the first four, you’ll be liable for tax only on the gains accrued during the six years during which you were a UK resident.
Additional benefits provided by TAR include:
| Type of Benefit | Explanation |
|---|---|
| Possibility to be combined with other relief options | Utilising time apportionment relief doesn’t prevent you from taking advantage of other tax relief options, such as top-slicing relief, and further reducing your tax liability. |
| Wealth accumulation | The tax reduction that results from applying time apportionment relief can help you preserve more wealth, which you can use to support your long-term financial goals or allocate towards future inheritance planning. |
TAR may be claimed when an individual, personal representative, or trustee of a deceased person is liable for a chargeable event.
Time Apportionment Relief: HMRC Rules Before 5 April 2013 and After 6 April 2013
The TAR rules were changed on 6 April 2013. For UK expats holding investment bonds issued before this date, it’s crucial to understand the distinction between the old and new rules as the failure to do so can result in missed tax relief opportunities.
Bond Eligibility
Under the old rules, TAR applied exclusively to offshore investment bonds. With the new rules, the scope of TAR was increased to include onshore bonds. This change significantly increased the number of policyholders eligible to apply for TAR.
Note that offshore and onshore bonds issued before 6 April 2013 may be subject to the new rules if one of the following events occurred on or before that date:
- Increasing the benefits payable
- Assigning the policy to another individual (except to a spouse or a civil partner) or into a trust
- Holding policy rights as security for the individual’s debt
If you bought an onshore investment bond in 2007, you wouldn’t be able to take advantage of TAR by default.
However, you can assign your bond to your spouse, and this event would bring the bond into the post-2013 TAR regime, allowing you to utilise TAR together.
Changes in Ownership
If there was a change in ownership that occurred before the revised rules, TAR will be calculated based on the current policyholder’s period of non-residence over the policy’s entire term.
Under the current framework, TAR may be applied starting from the day one becomes the policyholder or receives rights to the policy or contract; this period is known as the “material interest period.”
Nick purchased an investment bond in 2014 and assigned it to John in 2021. John was a non-UK resident from 2018 until 2023. Under the old rules, John would be able to apply TAR to the period from 2018 until 2023.
The revised rules state that TAR is available for the period between 2021 (the year that John became the bond’s owner) and 2023 (the year John became a UK resident).
Assignments Between Spouses or Civil Partners
The 2013 rule changes did not affect the treatment of assignments between spouses or civil partners. It’s possible to transfer the non-UK residency period between partners for the purpose of utilising TAR. TAR is applied on their combined duration of ownership and non-UK residence.
If you assign an offshore bond to your spouse or civil partner, the non-UK residence period of the original policyholder is retained for TAR purposes. This ensures the relief continues uninterrupted, even if the receiving spouse was UK-resident throughout the bond’s duration.
What Rules Apply to Trustees and Executors?
TAR may be available to trustees and executors, provided they meet certain requirements.
- Trustees can only claim TAR if they are UK residents. If the bond was held at any point by a non-UK-resident trustee, the policy is disqualified from TAR under current HMRC rules.
- In addition, the settlor must have been a UK resident at the time of their death and must have passed away in a previous tax year.
- Executors (legal personal representatives) can claim TAR if the chargeable event gain arises during the administration of the estate. For both trustees and executors, the relief is calculated based on the deceased individual’s period of non-UK residence and their material interest period.
How Is TAR Calculated?
The method for calculating TAR also changed following the new rules:
| Before the 2013 Rules Revision | After the 2013 Rules Revision |
|---|---|
| Total gain x (non-UK residence in days / total number of days the policy was in force) | Total gain x (number of days of non-UK residence in the material interest period / total number of days in the material interest period) |
TAR calculations can become increasingly complex in cases involving policy top-ups, withdrawals, or multiple changes in residency. For this reason, it’s highly recommended to consult a financial adviser who can review your situation and help you determine TAR accurately.
What To Consider When Calculating Your TAR
In specific circumstances, TAR can help UK expats significantly save on taxes, but there are several considerations one should be aware of:
- Difficulties with determining residency.
- Calculation errors.
- Complex individual circumstances.
- Strategic benefit for future top-ups.
Difficulties With Determining Residency
TAR is only available to individuals who have been non-UK residents during the policy’s term. However, determining residency isn’t always straightforward as leaving the UK doesn’t automatically terminate your UK tax residency status.
While spending 183 days or more outside the UK in a tax year typically indicates non-UK residency, the UK government applies additional criteria defined in the Statutory Residence Test (SRT) to confirm your official status, including:
- Automatic UK tests: According to these tests, you’re a UK tax resident if you spent more than 183 days in the UK, have a home in the UK, and work full-time in the UK for any period during a tax year.
- Overseas tests: These tests evaluate the time you’ve spent in the UK in the three years before the current tax year and your working situation abroad.
- Sufficient ties tests: These tests examine your connections to the UK to determine your tax residency. They focus on your family, accommodation, and work ties.
It’s also essential to consider split-year treatment, which allows a tax year to be split into two periods that reflect your residency status accordingly and, consequently, reduce your tax liabilities. Note that you can utilise split-year treatment only if you’ve lived outside the UK for more than a full tax year before returning.
If you qualify for split-year treatment, only the portion of the tax year in which you are a UK resident is counted when calculating TAR. This distinction can reduce the number of days considered UK-resident under the material interest period, enhancing the relief available.
If you are having trouble determining your residency status with certainty, it’s advisable to seek guidance from a specialist.
Experienced advisers at Titan Wealth International can help you determine your tax residency, analyse how TAR applies to your case, and optimise your tax position through other potentially applicable types of tax relief.
Calculation Errors
Claiming TAR requires careful and intricate calculations that take into account the precise amount of chargeable gain and the number of days of non-UK residency.
The individual liable for income tax is responsible for accurately defining the reduced gain and ensuring the relief is applied according to official guidelines.
Miscalculations can result in:
- Underclaiming TAR results and paying more tax than necessary
- Overclaiming TAR and becoming exposed to penalties
Since an incorrect claim could expose you to audits and other legal issues, it’s crucial to ensure all information is accurate.
Complex Individual Circumstances
Multiple changes in policy ownership, regular travel to and from the UK, partial policy surrenders, or frequent withdrawals can complicate the process of accurately determining TAR.
For this reason, it’s essential to ensure all policy-related data is up-to-date and work with a professional tax adviser who can guarantee full compliance with all relevant laws.
Strategic Benefit for Future Top-Ups
It is important to note that time apportionment relief is cumulative across the policy’s term. Therefore, if you establish a policy now and make additional top-ups in the future, those top-ups will benefit from the entire period of accumulated non-UK residency applicable to the policy.
From a strategic planning perspective, this makes early policy setup advantageous, particularly for UK expats aiming to maximise future tax efficiency through TAR.
Does TAR Affect Top-Slicing Relief?
Top-slicing relief provides a reduction in total income tax liability by averaging the gain over the number of years the bond was held, which can keep the chargeable gain within lower tax thresholds.
Since TAR doesn’t exclude top-slicing relief and vice versa, expats can take advantage of both, but there are limitations to be aware of. If an expat is eligible for TAR, the number of years used for the top-slicing relief calculation will be reduced by the number of full tax years during which the expat wasn’t a UK resident.
Complimentary Time Apportionment Relief Consultation
Time Apportionment Relief offers UK expats powerful tax advantages – but only if applied correctly. In a free consultation with Titan Wealth International, you will:
- Confirm whether your investment bond qualifies for TAR under current HMRC rules.
- Understand how TAR interacts with top-slicing relief and non-resident tax planning.
- Learn how to structure future bond top-ups to maximise cumulative TAR benefits.
Key Takeaway
Time apportionment relief can be applied to a UK gain arising from a chargeable event, such as surrendering an investment bond. This relief is available only to individuals who were non-UK residents for a certain period of the bond’s term.
In this guide, we’ve explained what TAR is and how it works. We’ve outlined how TAR rules and calculation formulas changed on 6 April 2013 and discussed the main differences between the old and revised rules.
Additionally, we’ve covered the most common challenges associated with TAR, which are often related to complex calculations or difficulties with determining residency.
With the guidance of experienced and accredited financial advisers, like those at Titan Wealth International, expats can more easily manage the challenges of cross-border financial planning.
